March 20, 2013

The UK needs growth and it needs it now: the forecast for 2013
is now halved to 0.6% and unemployment is rising once more. So did the Budget
deliver? From a growth perspective, there are various welcome measures. Putting
infrastructure and housing centre stage, policies to stimulate business
investment, a cut in the cost of employing people and, of course, confirming
that the Heseltine Single Local Growth Fund will be implemented are all good to
see. But it is too little, too late. It lacks a ‘place’ focus that means
policies could have adverse consequences for both London and the South East as
well as many northern cities.

Housing is a good example of what happens when you have
place-blind policy. It’s good the Government is
recognising (through New Buy and Right to Buy) how
much many people are struggling to buy their own homes – the Centre’s Cities
Outlook highlighted this. But the UK needs 232,000 new homes a year just
to meet demand, and we’re already at least 100,000 homes short of that. Without more measures to build homes, and soon, there’s a
danger that a further house price bubble will be fuelled, particularly
in the least affordable cities which have most pressure on the few homes
available. We would also have liked to see more of
a place-sensitive approach: while many fast-growing cities need new houses –
and this could help create jobs, other cities with weaker economies – many
based in the North - would benefit more from measures to stimulate
refurbishment and retrofit, also creating jobs.

Infrastructure is also another case of benefits later rather
than sooner. It’s good that the Chancellor is so clear about the importance of infrastructureto
growth, and an extra £15bn for new road, rail and energy
projects by 2020, starting with £3bn in 2015-16, could make a big difference to cities across the UK, especially where
lack of infrastructure has been identified as a major barrier to growth. But
why wait until 2015? And since many of the ‘shovel-ready’ infrastructure
projects are relatively local, why not loosen
Whitehall’s control on the purse-strings so that local areas can reallocate
money towards infrastructure projects (or even other projects, if locally-appropriate)
that they know will kickstart local growth?

Central
pursestrings may well be loosened with the Budget’s very welcome endorsement of
Lord Heseltine’s Single Local Growth Fund,
alongside a range of other commitments to devolve more control of economic
policy to local areas. Yet, the impact of policies such as the Fund will depend upon their scale,
and this won’t be confirmed until the 26
June Spending Review announcements. Even when it is confirmed, it won’t
make a difference in the short term as, again, it
won’t launch until 2015. In the meantime, it’s vital that Government make use of
City Deals as a way to devolve powers and funding more quickly (and considering
how to extend the ‘core package’ to all other LEPs as a way into the Single
Local Growth Fund negotiations in 2015).

Some of the tax cuts may help increase spending in cities,
whether the increase in the personal allowance, the scrapping of the 3p rise in
fuel duty or the 1p reduction in beer duty (a boon for community pubs at any
rate). And, help on childcare is also good for cities, as it’s one of the
biggest barriers to work – although there are questions about whether this
approach (again not happening until 2015) – will really help reduce costs for
parents, a particular concern for cities like London where childcare is most
expensive.

Some of the business tax cuts may also be helpful to the UK
economy as a whole (and therefore to cities), although the jury is out on the
additional impact of some of the measures. For example, the interesting question about
the Employment Allowance – the reduction by £2k of national insurance costs for
all firms - is whether the additional benefits of encouraging businesses to
take on employees will outweigh the deadweight incurred by a policy that
subsidises employers for doing things they would have done anyway. What is undeniable is the importance of policies to generate jobs given today's figures showing youth unemployment is up.

It was a shame that there were such limited announcements on
skills, despite the Chancellor saying that it’s the most important thing for
long-term growth, there was a sense he felt the Government is already doing
enough. We’d like to see more investment in this area – Cities Outlook 1901
shows it’s critical to keep investing in skills – and we’d also like more of a
place lens on this policy area, as our evidence clearly shows that in certain
cities, a lack of jobs available is further compounded by lower levels of
achievement by school leavers.

It’s also likely that, as we pore over the figures, there’ll
be more interesting nuggets to come on local government funding. It was good to
hear confirmation of protection from further cuts for 2013/14 but, given the
£11.5bn savings that need to be found, I’m sure that this won’t last long. It’s
also likely that local government will be affected by the announcements on
higher pension contributions from the public sector, so I’d expect to see local
finances continuing to be squeezed over the next few years. Which brings us
back again to the need for more local control over the money there is, enabling
local areas to decide how to spend what little money is left.

Overall, it’s a Budget with various policies for growth –
but more for growth tomorrow than growth today, with the inevitable impact this
will have on cities. In the short term, it is to be hoped that policies on
infrastructure, housing and business can be delivered in a way that helps
cities grow. And, looking to the future, the key will be implementing Heseltine
in a way that changes decision-making and funding in cities so that they can
drive economic growth more effectively in the future – that’s the only way to
achieve the kind of uplift in economic growth that the OBR is pointing to for
2014 and beyond.

Andrew set out yesterday how housing could deliver a short
term stimulus to the UK’s economic conundrum. Another area that the Chancellor
has hoped will deliver jobs and growth is inward investment, as shown by his cutting of corporation
tax and the PM’s recent trip to India.

Cities have been keen to jump on the agenda of inward
investment from foreign businesses too. The suitably vague request for the
signing of a 'Memorandum of Understanding’ with UKTI has been almost ubiquitous
across City Deal submissions and conversations around them.

It’s no surprise that cities are eager to encourage
investment from foreign shores into their cities. But if the Chancellor takes
the opportunity to further incentivise international business into Blighty,
where are they most likely to want to locate?

Our Open
for Business report last year looked at the geography of foreign owned
businesses across the UK. Cities in the Greater South East, led by London, are
the most popular destinations for foreign owned businesses. Almost one in three
of foreign owned firms in the UK are based in these cities, compared with one
in four businesses overall (i.e. those domestically and foreign owned). Cities
in the North West, on the other hand, tend to be the least popular. They are
home to 7.1 per cent of all businesses but just 6.1 per cent of all foreign
owned businesses.

Individually, the two most successful cities in attracting
foreign owned businesses lie outside of the Greater South East. At 7.2 per cent
of the total business base, Swindon has the highest proportion of foreign owned
businesses. It is followed closely by Aberdeen at 7.1 per cent.

While there
is large variation across cities in terms of the share of foreign owned
businesses, there is much less variation in terms of the countries that these
businesses represent.

Businesses
from the USA dominate the total number of foreign firms in our cities. With the
exception of Belfast, businesses whose ultimate parent is based in the USA
account for the most foreign owned businesses in every city in the UK. Reading
in particular is a hotspot for US owned firms– 2.8 percent of its total
businesses had an ultimate parent from the USA in 2010. The next most frequent
countries represented are near neighbours France, Germany and Holland.

The
economies such as China and India are likely to become increasingly important
for purchasing our goods and services. But the BRICS countries are conspicuous
by their absence. Companies from these countries make up no more than 0.2 per
cent of the total business base of the most popular city, Luton. The maps below show the geographies of businesses from the USA, Eurozone and BRICS across UK cities.

It is
likely that any further moves by the Chancellor to attract companies to our
shores in this week’s Budget will fall more loudly on the ears of business
bosses in our traditional heartlands of Europe and the USA, rather than the
fast growers of the developing world. And if history repeats itself, those
businesses listening are most likely to choose cities in the Greater South
East.

March 19, 2013

I’ve been
reflecting on the Government’s response to Heseltine
overnight. While most commentators have reacted in a broadly positive way, as
always, much depends on how policies are implemented and whether the rhetoric
about the Government’s commitment to devolve is supported by day-to-day
decision-making.

Key points worth
noting:

Creation of Single
Local Growth Fund: The details of what will be in the Fund are still being
negotiated as part of the Spending Review, and we would expect this to be
smaller than Lord Heseltine’s recommendation of £49bn. It is good news that
transport, housing and elements of skills funding (though not yet
apprenticeships) will be in the Fund, and it could be good news that they’ll be
looking for “alignment” with other skills and employment programmes as well as
EU Structural and Investment Funds, although ‘alignment’ is one of those words
that can cover a multitude of policy responses...It will be important, however,
that the perfectly sensible criteria for which monies to include in the Fund
(on p.42) are not applied in such a way that, where evidence is limited as to
what works best at national / local level, the default is to keep everything
national.

Competition: There
will be an element of competition, but perhaps not quite what Lord Heseltine
envisaged. The response says that the Single Local Growth Fund will be
allocated “through a process of negotiation and using competitive tension to
strengthen incentives on LEPs and their partners to generate growth”. This
means that every LEP will get something but the exact offer will depend on
individual plans. A process similar to the Wave 2 City Deals approach may be
used to strengthen the quality of multi-year strategic plans and bids to the
Fund, with more available to those that “put forward robust and ambitious means
of delivering economic growth plans”, demonstrate greater innovation, stronger
capacity and stronger governance across the LEP area.

Capacity and
Local Enterprise Partnerships: An approach based on competition raises
questions, as always, about the places that have less effective LEPs and
partnerships; the variability of LEPs around the UK is well documented. The
response is clear that LEPs will be the main bodies through which funding is
channelled, as for the Growing Places Fund, but that LEPs should remain “small,
responsive, business-led organisations and avoid becoming local bureaucracies”.
LEPs will get an additional £10m a year to boost their capacity and support
development of strategic multi-year plans for local growth, and there will
potentially be some support from Local Growth teams, but more detail is needed
on whether government will provide different types of support to LEPs that are
less developed, particularly in economic areas that are either particularly
vulnerable or have particularly high growth potential.

Governance: It’s
clear that the Government is pushing hard for local areas to improve their
governance. Government has said it will support local authorities to form
combined authorities or other forms of collaboration through a £9.2m
Transformation Challenge Award, will not prevent areas pursuing unitary status,
and will seek legislation for directly elected mayors for combined authorities
where this is wanted by local areas. This is all very good news, particularly
‘conurbation mayors’ – the Centre has been calling for this since 2006,
although we would want to see clear powers and funding attached to a directly
elected mayor, to avoid the problems that the referenda last year ran into.

Getting
Whitehall thinking locally: It is good that Local Growth teams are going to
be established and that every LEP will have a senior Whitehall sponsor to work
with them to understand their priorities and introduce more place-based
thinking into Whitehall policy. However, to achieve the kind of transformation
in policy making required to ensure that every national economic growth policy
at least considers place when it is developed, this will need to go beyond
senior sponsors having greater familiarity with one place. Instead the senior
sponsors will need to challenge policies not just as champions for their LEPs,
but on the basis that national policies work best if they are able to adapt to
local circumstances.

Infrastructure
and borrowing: It’s interesting that a new, concessionary Public Works Loan
Board Rate will be available to an infrastructure project nominated by each LEP
(except London), with the total borrowing capped at £1.5bn – and will be a good
test of LEPs for them to have to put forward just one project to be considered.
But will £1.5bn be enough – and will sharing it out between LEPs result in
jam-spreading rather than prioritisation of the projects that could make the
biggest difference to growth? Understanding the (national!) criteria for
allocation of the borrowing will be important to ensure that this results in
the boost to local growth intended.

Generally, there’s
some good news in the response to Heseltine, not least because some of the
measures are tackling the culture of centralisation as well as being specific
policies to change allocation of powers and funding. But the proof is always in
the implementation – and the money. Just as Heseltine’s approach was, the
response from Government is still a relatively centralised approach to
devolution and the real test will be whether this gets implemented in a way
that really does cut through Whitehall silos, whether the pot is going to be
big enough, and whether Government really does let go of some of its strings.

To help point the
way forward, we have distilled the 81 recommendations that the Government has
committed to at least partially implementing into the top ten priorities national and local
policymakers now need to focus on, including establishing a significant
Single Local Growth Fund, ensuring flexibility about the way funds are
allocated, and building on some of the most useful aspects of City Deals such
as the ability to negotiate, with constructive challenge from Government to
help local areas improve their plans.

Heseltine is a real
opportunity to make a difference to the UK economy; we need to do all we can to
ensure it is implemented in a way that makes the most of that potential.

They join a growing group that includes not only the Greater Manchester Combined Authority but also West Yorkshire (Leeds City Region) and South Yorkshire (Sheffield City Region), both of which declared their intention in their City Deals of forming combined authorities.

For those that want to know a bit more about Combined Authorities we published a briefing on them a while back looking at their powers, funding and potential advantages.

Coupled with yesterday’s announcement at the launch of the Greater Birmingham Project: the Path to Local Growth that Greater Birmingham and Solihull LEP will set up a ‘supervisory board’ to manage and “provide political accountability” for single pot growth funding means that a system of city-region governance for England at least is beginning to take shape.

Once the Combined Authorities are in place then the appetite to revisit the merits of Metro-Mayors, which we’ve been advocates for since our 2006 City Leadership report, will grow.

1.Create a single funding pot for local areas, aligned with European funding allocations to provide greater flexibility for cities to adapt policies to their local circumstances, a more efficient allocation of resources at a local level, a more effective allocation of European funding streams and more scope for local innovation in terms of service delivery and pursuing growth.

2. Be flexible about the institutional structures and geographies to which it devolves funding to ensure that funds are devolved to functional economic areas, rather than within administrative boundaries, and that the body making decisions about funding allocation is democratically accountable and committed to a long term growth strategy.

3. Resist the temptation to continue setting the agenda nationally, particularly in relation to LEPs, recognising that different areas need different kinds of support if their local economy is to thrive. Large Core Cities, fast-growing small and medium cities and cities struggling in a post-industrial economy all require different support. Government should be open to flexing policy according to different needs.

4. Implement an approach to funding allocation that relies more on incentives than competition recognising that there are challenges inherent in making all funds subject to competition, including the risk that all places pursue the same priorities. Incentives should instead focus on the fundamental capacity of areas to deliver, including a requirement for strong governance, meaningful engagement with business and a clear focus on local growth.

5. Tackle Ministerial and civil service resistance to devolution by adopting Lord Heseltine’s recommendation that Ministers and permanent secretaries should be associated with individual LEPs, as well as creating permanent, cross-departmental local growth teams of civil servants to join up government at local level.

6. Use Heseltine to set a long term local growth agenda addressing private sector concerns over a lack of certainty in relation to national and local policy frameworks that they feel is currently inhibiting investment.

Working together, national and local Government should:

7. Ensure that Local Government steps up to take responsibility for delivering economic growth. Local government and LEPs need to take a lead by taking advantage of all existing and new powers to support economic growth at a local level. When developing local strategic plans, LEPs need to ensure that they are realistic, strongly place-based, developed with partners, and backed with investment and a delivery plan.

8. Manage issues relating to limited local capacity to ensure that cities can find ways to support one another and draw on expertise from the private and third sector where necessary. Implementing Heseltine’s recommendation for senior sponsors associated with individual LEPs may help with this, as could the introduction of secondments from national to local government and making use of public private partnership arrangements.

9. Ensure that Heseltine builds on the City Deals programme by ensuring that new centres of influence and power are not set up to compete against one another. Local areas must decide on their own governance and institutional structures to implement these separate processes, while elements of the City Deals process, such as the Core Package, should also be available to all local areas provided they can satisfy minimum criteria.

10. Strengthen local leadership by working towards the difficult process of local government reform, attempting to simplify the current overly complex system to create a streamlined system that recognises functional economic geographies more closely. It is vital, however, that both national and local Government do not become bogged down on institutional reform at the expense of broader delivery on local economic growth.

We will be providing regular updates as the Government takes forward these commitments.

As the Budget gets gradually leaked in time honoured fashion
(although much less than last year), today is ‘growth’ day, with the focus on
the Government’s response to Heseltine, to be published later today.

We haven’t seen the detail yet but press coverage
(particularly good, as usual, in the FT) so far suggests:

i) 81 out of 89 recommendations have been accepted,
including: the government drawing up a national growth strategy; seconding more
civil servants to the private sector; civil servants being in local growth
teams; and more business engagement in the school curriculum.

ii) Recommendations that haven’t been accepted include:
setting up unitary authorities; setting out plans for new airport capacity in
the south of England before 2015; and beefing up the legal powers of chambers
of commerce. The recommendation for a national growth council has been accepted
‘in part’ which means it hasn’t really been accepted; it’s regarded as existing
already.

iii) The single pot will be implemented, but it’s likely to
be much smaller than Lord Heseltine recommended. It will include skills (but
not apprenticeships), housing and transport, and the exact amount is being
debated in Whitehall at the moment (for which read there’s a big battle going
on, and Whitehall departments are trying to make this as small as possible).
The exact amount will be decided on in the Spending Review.

iv) Much of the money will be channelled through LEPs. Each
will negotiate a local growth deal, presumably along the lines of City Deals,
with the funding allocated depending on the quality of the bid. It will
be interesting to see how this fits with what’s in the core package.

I’ll blog again once I’ve seen the detail. But there’s a missed opportunity if the single pot
is so small that no meaningful work can be done, if everything is channelled
through LEPs and combined authorities are to be ignored (the latest one is in
the North East, announced on Friday – a significant achievement) or if local
areas get a few more instruments to play with but Whitehall still gets to call
the tune. More on this later.

March 15, 2013

Five years into the longest recession in a hundred years,
more than halfway through the Parliament…we need economic growth now. But what
will – can – the Chancellor do to turn the UK economy around?

Press coverage to date suggests that this will be a
‘steady-as-she-goes’ Budget, trying to avoid the negative headlines of last
March’s Budget (still described by some commentators as an ‘omnishambles’).
Despite the UK’s downgraded credit rating and public interventions by the
Business Secretary, there will be no abandonment of Plan A. Instead
it’s likely that the Chancellor will be looking for cost-neutral policies that
will make a big difference and will not be too unpopular – and there aren’t
many of those around. Bets are on housing, trying to boost lending to
businesses via the Business Bank, some more infrastructure projects (perhaps
supported by Qatar?) and then a few sprinklings of other policies, with
childcare one that’s been discussed at length in the past few months.

But given the current state of the UK economy, and the lack
of growth that has characterised the last two and half years, will this be
enough? Politicians, economists and commentators from all sides seem to think
not. The Chancellor is under pressure from the left and the right to take more
radical action to kick-start the economy. 2013
will be a hugely significant year both economically, and politically, with a
General Election looming large in 2015.

So, taking into account the circumstances that the
Chancellor is faced with, what does our evidence base and analysis suggest a
good Budget for the UK and its cities might look like?

First, it needs to invest more in the long term drivers of
economic growth. Most economists broadly agree on what these are: high levels
of skills; appropriate infrastructure; innovative businesses; strengths in a
range of diverse industries; better management to improve the UK’s poor
productivity. The Centre’s Cities Outlook 1901showed how important it
is to continue investing in these areas, especially skills. Previous Budgets
have sustained investment in research and development, put a bit more money
into infrastructure and talked about skills. This year a good Budget would be
one that sets out a long term strategy that gives the private sector certainty
about where to invest, and that sustains investment in key areas, especially
skills and infrastructure, so that in three to five years, the UK will be in a
better position to grow than it is today.

Second, a good Budget would inject some short-term fizz into
the economy. Part of the problem is the time that projects take - Government
has been bemoaning the lack of shovel-ready projects to put some backing
behind. Another part of the problem is demand; despite all the work already
ongoing to encourage more loans to small business or kickstart the housing
market, demand remains fairly weak. So a good Budget would be one that would
back some projects that can happen quickly and are likely to stimulate demand
in a range of sectors. This may require the
public sector to take a lead in identifying and de-risking these projects
through up front investment, so as to make them attractive enough for the
private sector to take forward.

The Centre has already written to the Chancellor asking for
three specific measures to be included in the First, a bold response to
Heseltine that gives cities far greater autonomy over their economic
development budgets, to help them better support local economic growth. Second,
focusing investment in housing on the most unaffordable cities and sites that
already have planning permission, while giving cities with weaker economies a
different set of housing incentives to encourage refurbishment and replacement.
Third, rethink the way that investment in cities is supported through reforming
Urban Development Funds.

The Centre will be publishing a series of blogs in the
run-up to the Budget, we’ll be live-tweeting and blogging on the day, and then
we’ll be putting up rapid response commentary. And we’ll be following up with a
whole series of papers in the run-up to the Spending Review, setting out how
working differently with cities could make a big difference to economic growth.
It’s an important time to be debating economic policy; if we can make more of
our cities economic potential, it could help get us back on the path to growth.

Seven per cent – that’s how much of the £10 million High
Street Innovation Fund, set up last year to bring empty shops back into use, has been spent to date.

The figures come from a Freedom of Information request by Paul
Turner-Mitchell, an independent retailer, who appears to be on a one-man fact
finding mission on all things High Street policy related - his earlier FOI
revealed that just 12 per cent of the £1.2 million money assigned to Portas
Town Teams had been spent to date. His investigations also reveal how the money
has been spent to date. In Dartford, £1,600 was used to hire a man in Peppa
Pig costume.

Whilst understandable, Mr Turner-Mitchell’s displeasure at
how much of this money has been spent to date, and how it has been used, misses
the point. Regular visitors to this blog will be aware of Centre for Cities’
view on the Portas Review, as detailed here.

In short, a focus on retail alone is far too narrow to solve
the malaise of the High Street. Retailers need sustained footfall. Unfortunately
no end of grant spent on bunting and flower pots is going to deliver this. In
the majority of instances the steadiest source of footfall past the doors of High
Street retailers is likely to be by non-retail workers. But the Portas Review
completely ignores this fact, and so too have a raft of studies published on
the back of it.

The latest to do so is the London Assembly Economic
Committee’s report on empty shops, published
earlier this week. At the launch event, London Assembly Member Andrew
Dismore, Chair of the Economic Committee, remarked that it is the outer lying
High Streets of London that are struggling in particular, and it is these
places that require specific attention from London policymakers to reverse
their retail fortunes.

It’s worth reflecting on this point for a second to show why
something that is well intended is ultimately misguided. A key economic role
played by Outer London Boroughs, as shown in our report Size Matters, is to
‘export’ workers to business-rich central London. This means that the
population of central London swells massively during standard trading hours, as
illustrated in the infographic below (with thanks to Alasdair Rae - see his excellent blog). And so too does the potential
market for retailers – this large in-migration of people every day provides
them with punters to sell their wares to.

It is because of these commuting patterns that retailers
such as Pret thrive in Central London. There are 193 Pret stores in the capital,
the highest of any city in the UK (the next highest is Birmingham, with five).
Where are these Prets located? 80 per cent are in the Inner London Boroughs.
And almost 60 per cent are in Westminster, Islington and the City of London
alone.

London’s core has been strengthening in recent years – more and
more of the capital’s businesses are choosing to locate and is likely to continue to do so as density
becomes ever more important for knowledge based businesses. This, coupled with
the on-going national economic malaise and the rise of internet shopping, means
that for many Outer London High Streets retail is likely to be inappropriate as
a response for reversing their fortunes. Instead policymakers in London should
be thinking about what other uses are suitable for these areas.

What does this mean for cities more generally? Retail
thrives where footfall is concentrated. This means that, particularly in cities
where we have seen a dispersal of economic activity in recent years, any
attempts to revive ailing retail-dominated High Streets should be thinking
about how they can encourage a concentration of economic activity in their city
centres. While not the only required response – tourism, residential and
leisure also have a role to play - only when this has occurred will bunting and
flower pots have any sort of impact.

We should worry less about Portas money not being spent –
its approach means that the money is likely to have little impact
even if it had been used. This could even be a blessing in disguise – at least
it gives the opportunity for it to be recalled and spent on something a little
more sensible. Instead we should be thinking about how to support growth in
underperforming city centres. The Centre for Cities will be investigating this
in more detail in the coming months.

March 14, 2013

Colleagues in the office and those who know me already
are aware that I am extremely interested in regional banks. It is hardly surprising
that the topic is in vogue given we suffered the financial crash in 2007 and that six years on the economy continues to stutter. There are also political shifts such as the rhetoric to ‘rebalance the economy’ and a
greater emphasis on local economic growth.

The discussion has been ratcheted up today
with Ed Miliband delivering a speech on this topic at the British Chambers of
Commerce conference. The model in Germany is often cited but how many people
actually know what it looks like? Well, for those who want a bit more
information, read on!

The German financial system operates within a federal
political system and is based upon three tiers of banking: 1. Public banks; 2. Co-operative banks and; 3. Private banks.

Public banks

Public banks are owned, run and managed by federal
government, states, districts or cities and have a specific investment remit, for example development and
infrastructure, with a long-term perspective. Importantly, finance is raised by
issuing bonds that are guaranteed by the federal state. There are two
sub-sectors of public banks: Sparkassen (savings banks) and Landesbanken
(regional banks).

Sparkassen are locally owned and run, often by cities or a group of cities (not for profit) and concentrate on
universal banking (for example, loans to individuals and SMEs).

Landesbanken are owned by savings banks
via the federal system. The Landesbanken are effectively the central bank for
the region’s Sparkassen (by providing liquidity) and also provide wholesale
banking (i.e. to large organisations and/or cross region finance).

Co-operative banks

Co-operative banks include both credit unions and
co-operatives and offer similar but differentiated products.

Credit unions provide loans and finance to
the individual and small businesses based upon a common bond under which the credit union operates. For example, the
credit union could be location specific or profession specific.

Co-operatives provide finance to
individuals and SMEs but offer more democratic accountability as members can
decide how the bank is run.

Private banks

Private banks operate as private banks do here, in the
UK. They have branches across the country (and, indeed, the world), and provide
all the same services.

The UK does not have public banks but
rather has a private sector led system. The difficulty in changing the
system in the UK is that we don’t have a federal political system and so
financial responsibilities are maintained at the national level. Moreover, public banks would also require institution building which takes time and money.

However, there are already many funding streams from
central government to target specific industries – namely manufacturing or
green technology – as well as specific financing ideas such as the Cambridge
and Counties Bank (a partnership between the university and the county) which
could benefit from such a targeted system. There may also be a role for quantitative
easing to be better channelled into regions via a new finance structure.

One thing is for certain; if the idea of regional banks
is to catch on in the UK the core principles need to remain and the institutions need to be tailor made to our political, economic and administrative system. Public banks in Germany have local knowledge of their economy
which informs their long-run investment mentality and ensures local economic
growth is championed above short-run profit.